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Unformatted text preview: is to consider the demand curve that each firm faces. When we analyzed profit maximization by competitive firms in Chapter 14, we drew the market price as a horizontal line. Because a competitive firm can sell as much or as little as it wants at this price, the competitive firm faces a horizontal demand curve, as in panel (a) of Figure 15-2. In effect, because the competitive firm sells a product with many Quantity of Output Demand (a) A Competitive Firms Demand Curve (b) A Monopolists Demand Curve Price Quantity of Output Price Demand Figure 15-2 D EMAND C URVES FOR C OMPETITIVE AND M ONOPOLY F IRMS . Because competitive firms are price takers, they in effect face horizontal demand curves, as in panel (a). Because a monopoly firm is the sole producer in its market, it faces the downward-sloping market demand curve, as in panel (b). As a result, the monopoly has to accept a lower price if it wants to sell more output....
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- Spring '10